What Your Financial To-Do List Should Include for 2019

person holding black pen and book near pink ceramic mug

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Things you can do for your future as the year unfolds.

What financial, business, or life priorities do you need to address for 2019?

Now is a good time to think about the investing, saving, or budgeting methods you could employ toward specific objectives, from building your retirement fund to lowering your taxes. You have plenty of options. Here are a few that might prove convenient.

Can you contribute more to your retirement plans this year?

In 2019, the yearly contribution limit for a Roth or traditional IRA rises to $6,000 ($7,000 for those making “catch-up” contributions). Your modified adjusted gross income (MAGI) may affect how much you can put into a Roth IRA: singles and heads of household with MAGI above $137,000 and joint filers with MAGI above $203,000 cannot make 2019 Roth contributions. (1)

For tax year 2019, you can contribute up to $19,000 to 401(k), 403(b), and most 457 plans, with a $6,000 catch-up contribution allowed if you are age 50 or older. If you are self-employed, you may want to look into whether you can establish and fund a solo 401(k) before the end of 2019; as employer contributions may also be made to solo 401(k)s, you may direct up to $56,000 into one of those plans.1

Your retirement plan contribution could help your tax picture.

If you won’t turn 70½ in 2019 and you participate in a traditional qualified retirement plan or have a traditional IRA, you can cut your taxable income through a contribution. Should you be in the new 24% federal tax bracket, you can save $1,440 in taxes as a byproduct of a $6,000 traditional IRA contribution. (2)

What are the income limits on deducting traditional IRA contributions?

If you participate in a workplace retirement plan, the 2019 MAGI phase-out ranges are $64,000-$74,000 for singles and heads of households, $103,000-$123,000 for joint filers when the spouse making IRA contributions is covered by a workplace retirement plan, and $193,000-$203,000 for an IRA contributor not covered by a workplace retirement plan, but married to someone who is. (1)

Roth IRAs and Roth 401(k)s, 403(b)s, and 457 plans are funded with after-tax dollars, so you may not take an immediate federal tax deduction for your contributions to them. The upside is that if you follow I.R.S. rules, the account assets may eventually be withdrawn tax free. (3)

Your tax year 2019 contribution to a Roth or traditional IRA may be made as late as the 2020 federal tax deadline – and, for that matter, you can make a 2018 IRA contribution as late as April 15, 2019, which is the deadline for filing your 2018 federal return. There is no merit in waiting until April of the successive year, however, since delaying a contribution only delays tax-advantaged compounding of those dollars. (1,3)

Should you go Roth in 2019?

You might be considering that if you only have a traditional IRA. This is no snap decision; the Internal Revenue Service no longer gives you a chance to undo it, and the tax impact of the conversion must be weighed versus the potential future benefits. If you are a high earner, you should know that income phase-out limits may affect your chance to make Roth IRA contributions. For 2019, phase-outs kick in at $193,000 for joint filers and $122,000 for single filers and heads of household. Should your income prevent you from contributing to a Roth IRA at all, you still have the chance to contribute to a traditional IRA in 2019 and go Roth later. (1,4)

Incidentally, a footnote: distributions from certain qualified retirement plans, such as 401(k)s, are not subject to the 3.8% Net Investment Income Tax (NIIT) affecting single/joint filers with MAGIs over $200,000/$250,000. If your MAGI does surpass these thresholds, then dividends, royalties, the taxable part of non-qualified annuity income, taxable interest, passive income (such as partnership and rental income), and net capital gains from the sale of real estate and investments are subject to that surtax. (Please note that the NIIT threshold is just $125,000 for spouses who choose to file their federal taxes separately.) (5)

Consult a tax or financial professional before you make any IRA moves to see how those changes may affect your overall financial picture. If you have a large, traditional IRA, the projected tax resulting from a Roth conversion may make you think twice.

What else should you consider in 2019?

There are other things you may want to do or review.

Make charitable gifts.

The individual standard deduction rises to $12,000 in 2019, so there will be less incentive to itemize deductions for many taxpayers – but charitable donations are still deductible if they are itemized. If you plan to gift more than $12,000 to qualified charities and non-profits in 2019, remember that the paper trail is important. (6)

If you give cash, you need to document it.

Even small contributions need to be demonstrated by a bank record or a written communication from the charity with the date and amount. Incidentally, the I.R.S. does not equate a pledge with a donation. You must contribute to a qualified charity to claim a federal charitable tax deduction. Incidentally, the Tax Cuts and Jobs Act lifted the ceiling on the amount of cash you can give to a charity per year – you can now gift up to 60% of your adjusted gross income in cash per year, rather than 50%. (6,7)

What if you gift appreciated securities?

If you have owned them for more than a year, you will be in line to take a deduction for 100% of their fair market value and avoid capital gains tax that would have resulted from simply selling the investment and donating the proceeds. The non-profit organization gets the full amount of the gift, and you can claim a deduction of up to 30% of your adjusted gross income. (8)

Does the value of your gift exceed $250?

It may, and if you gift that amount or larger to a qualified charitable organization, you should ask that charity or non-profit group for a receipt. You should always request a receipt for a cash gift, no matter how large or small the amount. (8)

If you aren’t sure if an organization is eligible to receive charitable gifts, check it out at irs.gov/Charities-&-Non-Profits/Exempt-Organizations-Select-Check.

Open an HSA.

If you are enrolled in a high-deductible health plan, you may set up and fund a Health Savings Account in 2019. You can make fully tax-deductible HSA contributions of up to $3,500 (singles) or $7,000 (families); catch-up contributions of up to $1,000 are permitted for those 55 or older. HSA assets grow tax deferred, and withdrawals from these accounts are tax free if used to pay for qualified health care expenses. (9)

Practice tax-loss harvesting.

By selling depreciated shares in a taxable investment account, you can offset capital gains or up to $3,000 in regular income ($1,500 is the annual limit for married couples who file separately). In fact, you may use this tactic to offset all your total capital gains for a given tax year. Losses that exceed the $3,000 yearly limit may be rolled over into 2020 (and future tax years) to offset ordinary income or capital gains again. (10)

Pay attention to asset location.

Tax-efficient asset location is an ignored fundamental of investing. Broadly speaking, your least tax-efficient securities should go in pre-tax accounts, and your most tax-efficient securities should be held in taxable accounts.

Review your withholding status.

You may have updated it last year when the I.R.S. introduced new withholding tables; you may want to adjust for 2019 due to any of the following factors.

  • You tend to pay a great deal of income tax each year.
  • You tend to get a big federal tax refund each year.
  • You recently married or divorced.
  • A family member recently passed away.
  • You have a new job, and you are earning much more than you previously did.
  • You started a business venture or became self-employed.

Are you marrying in 2019?

If so, why not review the beneficiaries of your workplace retirement plan account, your IRA, and other assets? In light of your marriage, you may want to make changes to the relevant beneficiary forms. The same goes for your insurance coverage. If you will have a new last name in 2019, you will need a new Social Security card. Additionally, the two of you, no doubt, have individual retirement saving and investment strategies. Will they need to be revised or adjusted once you are married?

Are you coming home from active duty?

If so, go ahead and check the status of your credit and the state of any tax and legal proceedings that might have been preempted by your orders. Make sure any employee health insurance is still in place. Revoke any power of attorney you may have granted to another person.

Consider the tax impact of any upcoming transactions.

Are you planning to sell (or buy) real estate next year? How about a business? Do you think you might exercise a stock option in the coming months? Might any large commissions or bonuses come your way in 2019? Do you anticipate selling an investment that is held outside of a tax-deferred account? Any of these actions might significantly impact your 2019 taxes.

If you are retired and older than 70½, remember your year-end RMD.

Retirees over age 70½ must begin taking Required Minimum Distributions from traditional IRAs, 401(k)s, SEP IRAs, and SIMPLE IRAs by December 31 of each year. The I.R.S. penalty for failing to take an RMD equals 50% of the RMD amount that is not withdrawn. (4,11)

If you turned 70½ in 2018, you can postpone your initial RMD from an account until April 1, 2019. All subsequent RMDs must be taken by December 31 of the calendar year to which the RMD applies. The downside of delaying your 2018 RMD into 2019 is that you will have to take two RMDs in 2019, with both RMDs being taxable events. You will have to make your 2018 tax year RMD by April 1, 2019, and then take your 2019 tax year RMD by December 31, 2019. (11)

Plan your RMDs wisely.

If you do so, you may end up limiting or avoiding possible taxes on your Social Security income. Some Social Security recipients don’t know about the “provisional income” rule – if your adjusted gross income, plus any non-taxable interest income you earn, plus 50% of your Social Security benefits surpasses a certain level, then some Social Security benefits become taxable. Social Security benefits start to be taxed at provisional income levels of $32,000 for joint filers and $25,000 for single filers. (11)

Lastly, should you make 13 mortgage payments in 2019?

There may be some merit to making a January 2020 mortgage payment in December 2019. If you have a fixed-rate loan, a lump-sum payment can reduce the principal and the total interest paid on it by that much more.

Talk with a qualified financial or tax professional today. Vow to focus on being healthy and wealthy in 2019.

Sources

  1. forbes.com/sites/ashleaebeling/2018/11/01/irs-announces-2019-retirement-plan-contribution-limits-for-401ks-and-more
  2. irs.com/articles/2018-federal-tax-rates-personal-exemptions-and-standard-deductions
  3. irs.gov/Retirement-Plans/Traditional-and-Roth-IRAs
  4. forbes.com/sites/bobcarlson/2018/10/26/7-ira-strategies-for-year-end-2018/
  5. irs.gov/newsroom/questions-and-answers-on-the-net-investment-income-tax
  6. crainsdetroit.com/philanthropy/what-donors-need-know-about-tax-reform
  7. thebalance.com/tax-deduction-for-charity-donations-3192983
  8. schwab.com/resource-center/insights/content/charitable-donations-the-basics-of-giving
  9. kiplinger.com/article/insurance/T027-C001-S003-health-savings-account-limits-for-2019.html
  10. schwab.com/resource-center/insights/content/reap-benefits-tax-loss-harvesting-to-lower-your-tax-bill
  11. fool.com/retirement/2018/01/29/5-things-to-consider-before-tapping-your-retiremen.aspx

This material was prepared by MarketingPro, Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. This information has been derived from sources believed to be accurate. Please note – investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.

How to Tolerate Market Turbulence When Investing For The Long Term

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Look beyond this moment and stay focused on your long-term objectives.

Volatility will always be around on Wall Street, and as you invest for the long term, you must learn to tolerate it. Rocky moments, fortunately, are not the norm.

Since the end of World War II, there have been dozens of Wall Street shocks.

Wall Street has seen 56 pullbacks (retreats of 5-9.99%) in the past 73 years; the S&P index dipped 6.9% in this last one. On average, the benchmark fully rebounded from these pullbacks within two months. The S&P has also seen 22 corrections (descents of 10-19.99%) and 12 bear markets (falls of 20% or more) in the post-WWII era. (1)

Even with all those setbacks, the S&P has grown exponentially larger. During the month World War II ended (September 1945), its closing price hovered around 16. At this writing, it is above 2,750. Those two numbers communicate the value of staying invested for the long run. (2)

This current bull market has witnessed five corrections, and nearly a sixth (a 9.8% pullback in 2011, a year that also saw a 19.4% correction). It has risen roughly 335% since its beginning even with those stumbles. Investors who stayed in equities through those downturns watched the major indices soar to all-time highs. (1)

As all this history shows, waiting out the shocks may be highly worthwhile.

The alternative is trying to time the market. That can be a fool’s errand. To succeed at market timing, investors have to be right twice, which is a tall order. Instead of selling in response to paper losses, perhaps they should respond to the fear of missing out on great gains during a recovery and hang on through the choppiness.

After all, volatility creates buying opportunities. Shares of quality companies are suddenly available at a discount. Investors effectively pay a lower average cost per share to obtain them.

Bad market days shock us because they are uncommon.

If pullbacks or corrections occurred regularly, they would discourage many of us from investing in equities; we would look elsewhere to try and build wealth. A decade ago, in the middle of the terrible 2007-09 bear market, some investors convinced themselves that bad days were becoming the new normal. History proved them wrong.

As you ride out this current outbreak of volatility, keep two things in mind.

One, your time horizon. You are investing for goals that may be five, ten, twenty, or thirty years in the future. One bad market week, month, or year is but a blip on that timeline and is unlikely to have a severe impact on your long-run asset accumulation strategy. Two, remember that there have been more good days on Wall Street than bad ones. The S&P 500 rose in 53.7% of its trading sessions during the years 1950-2017, and it advanced in 68 of the 92 years ending in 2017. (3,4)

Sudden volatility should not lead you to exit the market.

If you react anxiously and move out of equities in response to short-term downturns, you may impede your progress toward your long-term goals.

MI-GTM_4Q18-HIGH-RES-63

▲ Time, diversification and the volatility of returns

This chart shows historical returns by holding period for stocks, bonds and a 50/50 portfolio, rebalanced annually, over different time horizons. The bars show the highest and lowest return that you could have gotten during each of the time periods (1-year, 5-year rolling, 10-year rolling and 20-year rolling). This page advocates for simple balanced portfolio, as well as for having an appropriate time horizon.

Sources

  1. marketwatch.com/story/if-us-stocks-suffer-another-correction-start-worrying-2018-10-16
  2. multpl.com/s-p-500-historical-prices/table/by-month
  3. crestmontresearch.com/docs/Stock-Yo-Yo.pdf
  4. icmarc.org/prebuilt/apps/downloadDoc.asp
  5. https://am.jpmorgan.com/us/en/asset-management/gim/protected/adv/insights/guide-to-the-markets/viewer

This material was prepared by MarketingPro, Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. This information has been derived from sources believed to be accurate. Please note – investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.

 

Searching for Health Coverage in the Years Before Medicare

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What are your options for insuring yourself prior to age 65?

If you retire before age 65, you must be prepared to address two insurance issues.

One, finding health coverage in the period before you can sign up for Medicare. Two, finding a way to pay for that coverage.

You know it will probably be expensive, but do you realize just how expensive?

A single retiree may pay as much as $500-1,000 per month for private health insurance. For a couple, the monthly premiums can surpass $2,000. These are ballpark figures; fortunately, seniors without pre-existing health conditions can locate some less expensive plans offering short-term coverage, albeit with high deductibles. (1,2)

If you find yourself in this situation, what are your options?

It is time to examine a few.

You could retire gradually or take a part-time job with access to a group health plan.

Ask your employer if a phased retirement is possible, so you can maintain the coverage you have a bit longer. Securing part-time work with health benefits elsewhere could be a tall order, as it may be much tougher to find a job in your early sixties; not all employers value experience as much as they should.

You could turn to the health insurance exchanges.

Purchasing your own coverage could be a first for you, and you may not be optimistic about your prospects at the Health Insurance Marketplace (healthcare.gov) or a state exchange. Your prospects could be better than you assume. As a Miami Herald article points out, a married couple younger than 65 earning around $65,000 could likely get a bronze plan for free through the Marketplace, thanks to federal government subsidies. A couple would be eligible for such aid with projected 2019 earnings in the range of $16,460-$65,840. For the record, the open enrollment period for buying 2019 coverage ends December 15. (2)

You could arrange COBRA coverage.

If you voluntarily or involuntarily retire from a company or organization that has 20 or more employees and a group health plan, that employer must give you the option of extending the health insurance you had while working for up to 18 months (or in some instances, up to 36 months). This is federal law, part of the Consolidated Omnibus Budget Reconciliation Act (COBRA) of 1985. (There is a notable exception to this: an employer can legally choose not to offer you COBRA benefits if you were fired due to “gross misconduct,” though the law defines that term hazily.) COBRA coverage is expensive: you effectively pay your employer’s monthly premium as well as your own, plus a 2% administrative fee. If you miss a premium payment by more than 30 days, your COBRA benefits may be canceled. (3,4)

You might be lucky enough to secure retiree health insurance.

Some employers do offer this to retiring workers; if yours does not, your spouse’s employer might. It is not cheap by any means, but it may be worthwhile. (1)

As a last option, you could move to another country (or state).

You could relocate to a nation that has either a universal health care system or much cheaper health care costs than ours does, either temporarily or permanently. If you decide to stay in that nation for the long term, you will really need to think about whether or not you want to sign up for Medicare at 65. Alternately, another state may present you with a cheaper health care picture than your current state does; a little research may reveal some potential savings. (1)

Review these options before you retire.

See how the costs fit into your budget. Have a conversation about this topic with an insurance or financial professional, because you may end up leaving work years prior to age 65.

JP-GTR-2018-30

▲ Rising annual health care costs in retirement

This chart illustrates the current range of total out-of-pocket health care costs experienced by today’s 65-year-old, and how those costs may increase over time. These costs include traditional Medicare with a supplemental policy. Supplemental policies, called Medigap, fill in gaps in Medicare coverage such as co-pays and deductibles. Part D for prescription drugs and out-of-pocket expenses are also included. Median costs are about $5,210 per person. Median costs are projected to more than triple over 20 years for three reasons: 1) higher than average inflation for health care expenses; 2) increased use of health care at older ages; and 3) Medigap premiums that increase not only with inflation but also due to increased age. It is important to note that these costs do not include most long-term care expenses. (4)

Sources

  1. forbes.com/sites/nextavenue/2018/08/07/shopping-for-health-insurance-before-medicare-kicks-in
  2. tinyurl.com/yccclxmc
  3. bizfilings.com/toolkit/research-topics/office-hr/what-is-cobra-what-employers-need-to-know forbes.com/sites/heatherlocus/2018/10/21/what-you-need-to-know-about-3-key-options-for-health-insurance-after-divorce/
  4. https://am.jpmorgan.com/us/en/asset-management/gim/protected/adv/insights/guide-to-retirement

This material was prepared by MarketingPro, Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. This information has been derived from sources believed to be accurate. Please note – investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.